IBM spooks market with dismal Q1

Beware the Ides of March

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A sharp drop in sales during March crushed an otherwise fair first quarter for IBM, the company said today. IBM's inability to close late quarter deals caused it badly to miss analyst expectations.

IBM pulled in $22.9bn during the period - a 3 per cent rise over the $22.2bn posted in the same period one year ago. Removing currency gains, IBM's revenue increased just 1 per cent. Income rose to $1.41bn from $1.36bn in 2004.

These minor gains coupled with IBM's negative take on the quarter rattled analysts and investors. Wall Street had been looking for earnings per share of 90 cents, not the 84 cents per share IBM reported.

"After a strong start, we had difficulty closing transactions in the final weeks of the quarter, especially in countries with soft economic conditions, as well as with short-term Global Services signings," said CEO Sam Palmisano. "As a result, we did not achieve all of our goals for the quarter."

IBM had been seeing revenue growth of 6 per cent in January and February but then noticed a drop off in "small transactions" and was unable to rectify the problems before the quarter closed. Sales were particularly slow in Germany, France, Italy and Japan, IBM said.

IBM's largest business - Global Services - posted a 6 per cent revenue gain, hitting $11.7bn during the first quarter. In constant currency, the gain was just 3 per cent.

The story was less bright for IBM's hardware unit which saw flat sales or a drop off of 2 per cent in constant currency. This group generated $6.7bn on the back of strong Unix servers sales and decent x86-based server shipments. IBM's storage and mainframe sales were disappointing.

Software revenue rose 2 per cent to $3.6bn - or was flat in constant currency. Middleware sales increased a bit, while operating system sales dropped slightly.

IBM declined to speculate about second quarter financial figures due to the rocky March run. Shares of IBM tumbled more than 5 per cent in the after-hours markets, at the time of writing, to $80.31. ®